Equity Method Investment Several Years after Acquisition On January 2, 2011, Bes

Question

Equity Method Investment Several Years after Acquisition On January 2, 2011, Best Beverages acquired 27 percent of the stock of Better Bottlers for $18 million in cash. Best Beverages accounts for its investment using the equity method. At the time of acquisition, Better Bottlers' balance sheet was as follows (in millions): Better Bottlers Balance Sheet, January 2, 2011 in millions) Assets Current assets Property and equipment, net 249 Patents and trademarks Total assets Liabilities and equity Current liabilities Long-term debt Total liabilities Capital stock Retained earnings Total equity Total liabilities and equity $351 $12 90 351 25.2 310.8 336 7.2 7.8 15 Valuation of Better Bottlers' assets and liabilities revealed that its reported patents and trademarks (12-year life) had a fair value of $96 million and it had unrecognized brand names (18-year life) worth $5.4 million. Better Bottlers' December 31, 2014, retained earnings balance is $15 million. For 2014, it reported net income of $1.5 million and paid $390,000 in dividends. For all answers below, enter the complete figures using all zeros. For example, $1 million should be entered as 1,000,000. Required (a) Prepare the 2014 entries to report the above information on Best Beverages' books.

Explanation / Answer

Answer to Part B

Best Bevrage Aquired 27% in Better Bottler at $18,000,000

Breakup of Purchase Price

Investment in Better Bottler Balance as on 31st Dec'14 is $19,080,000 ($18,000,000+$1,944,000- $864000)

Investment  = $18,000,000

Share of Retained Earning increased from 2011 to 2014 = $1,944,000 (($15,000,000 - 7,800,000)*27%)

Amortization Of difference between Book value and Fair Value for 4 years = ($864,000)

        Patent and Trade mark = ($96,000,000-$90,000,000)*27% /12 * 4 = $540,000

        Unrecognized Brand Name = 5,400,000 * 27% / 18*4 = $324,000

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.